“In this world, nothing certain but death and taxes.” – Benjamin Franklin

Tuition credits

If you are in school, you get a tax break in the form of tuition credits. And if you can’t use these credits, you can transfer them to your spouse, your parents or your grandparents.

Step 1: Get a Form T2202 from your college or university.

Step 2: The information from this form must be entered into a schedule 11 on your tax return in order to claim the credits. You will be able to claim both a tuition amount, and a monthly allowance for books, as detailed on the form. (Contact me if you have any questions.)

Step 3: If you can not use the credit (because your income is too low) you can either keep the credit for future years, or transfer it to a spouse, or transfer it to a parent or grandparent up to $5,000. To transfer the credit you must sign the back of your form T2202.

NB. The student is the one who fills out the schedule 11. If you are the person receiving the transfer you do not submit a schedule 11. The only supporting documentation you need is the signed T2202, and make sure you keep this documentation in case CRA requests it.

Read the CRA page on the subject of transferring tuition and education credits.

 

Do I really have to keep all these receipts for 7 years?

“I am trying to cut down on stored paper (and ideally to have none) but would like to have all my business receipts on file for next tax season. I’m wondering – is it acceptable to store the receipts in digital format? For example could I just take a photo of each receipt? And what about the tax return papers that are supposed to be stored for 7 years? Are digital photos good enough in the case of an audit or must I keep all this paper clutter?” – Jesse, Musician

Unfortunately, no, digital files are not currently accepted by the Canada Revenue Agency in the case of audit. The chap I spoke to at CRA insisted that you must keep all your receipts. When you are self employed, it can turn into a pile of paperwork, but a small accordion file for each year is often a good solution. There are bookkeeping apps that photograph your receipts, which you may find helpful when out and about, but you will want to keep the paper originals as a back-up.

And regarding what to save for tax returns: basically your Notice of Assessment, your return and any supporting documents for this year and the preceeding 6 years.

Getting ready for tax filing

Yes, it’s another list. This time it is a checklist to help you get all your paperwork ready for your tax preparer.

Here is a basic list of the information to put together:

a) personal details: name, address, sin, date of birth and marital status (name and sin of partner if common-law or married)

b) information about dependents – birth dates, full names, plus any eligible expenses including childcare, arts and sports expenses (contact me if you need more information about what is eligible)

c) all income information including:
T4, Statement of Remuneration Paid
T4A, Statement of Pension, Retirement, Annuity, and Other Income
T4A(OAS), Statement of Old Age Security
T4A(P), Statement of Canada Pension Plan Benefits
T4E, Statement of Employment Insurance and Other Benefits
T4RSP, Statement of RRSP Income
T5007, Statement of Benefits
T5, Statement of Investment Income
RC62, Universal Child Care Benefit statement
RC210, Working Income Tax Benefit Advance Payments Statement

d) any student loan payments (you should receive a statement which details how much interest and principal were paid off over the year.)

e) Your Notice of Assessment from your most recent tax return

f) Details about any RRSP contributions made

g) Details about any charitable donations made or moving expenses (over 40 km for work or study)

h) Self employed people – see my previous post

i) If you have rental income – hold tight, as I am working on a post about that. In the meantime, contact me for more detail if you need it.

What can I claim as expenses as a self-employed person?

I seem to be making this list over and over again for self-employed people who want to know what they can claim as an expense against their income. Please contact me if you need any clarification about anything listed here, or have questions about other expenses that may be deductible for your business.

1. Costs of goods bought for re-sale
2. Materials
3. Vehicles and equipment bought (assets over 500$) (These will be subject to depreciation calculations. You need to record the total cost and the date the item was purchased. contact me for more information about depreciation.)
4. Small tools and equipment (under $500)
5. Subcontractors
6. Travel expenses
7. Legal and accounting fees
8. Advertising and promotion expenses
9. Telephone bills (cell phone or workplace phone but not a home landline)
10. Interest and bank and credit card charges
11. Office supplies
12. Postage and freight costs
13. Internet costs (if for business and personal make an estimate of how much business and how much personal)
14. Meals and entertainment (for the purpose of business they are 50% deductible)
15. Insurance – business, professional liability (check with me for more clarification regarding personal life and medical insurance)
16. Business use of home (The easiest way to calculate is if you have a dedicated area of your home that is an office 24/7. In this case you would calculate by square footage what proportion of your total living space is used for business.) This includes: property taxes, mortgage interest, rent,repairs and maintenance, utilities (not including home phone line). NB. If more than one person in a household is self-employed, only one of you can claim these expenses.
17. Auto Expenses (You are required to log the business and personal use. Contact me for more information about ways to do this, or if you did not do it, other ways that you keep records that may suffice in the mean time. I do encourage everyone to do this for at least one year.) This includes gas, insurance, auto repairs and maintenance and parking.

This list was written off the top of my head and will probably be a work in progress for a little while. It is NOT intended to substitute for information from the Canada Revenue Agency. It is a guide to help you organize your shoebox full of receipts before you meet with  tax professional. anyone filing their own taxes should confirm the information I have given you by referring to the Canada Revenue Agency website.

Love and taxes

People keep asking me when they have to file as common law for tax purposes. Today I called CRA and this is what the friendly phone person told me. You have to file as common law when you have been living together for 12 months or when a couple (who share a home) have a baby together, or share custody of a child.

If you get married or become common law during the year, and you receive UCCB or GST/HST Credits, be sure to let the tax man know or expect to be asked to pay back over-payments.

Preparing to file your taxes?

I know tax talk is not everyone’s cup of tea, but in my experience, having a simple checklist can really help alleviate that overwhelming feeling of burdensome bureaucracy. So whether you are filing your own taxes or are having someone else do them for you here’s a list of what you need to put together:

a) personal details: name, address, sin, date of birth and marital status (name and sin of partner if common-law or married)

b) all income information including:
T4, Statement of Remuneration Paid
T4A, Statement of Pension, Retirement, Annuity, and Other Income
T4A(OAS), Statement of Old Age Security
T4A(P), Statement of Canada Pension Plan Benefits
T4E, Statement of Employment Insurance and Other Benefits
T4RSP, Statement of RRSP Income
T5007, Statement of Benefits
RC62, Universal Child Care Benefit statement
RC210, Working Income Tax Benefit Advance Payments Statement

c) information about dependents – ages, plus any eligible expenses including childcare, arts and sports expenses

d) any student loan payments (you should receive a statement which details how much interest and principal were paid off over the year.)

e) Your Notice of Assessment from your most recent tax return

f) Details about any RRSP contributions made

g) If you want to file your taxes online (by far the quickest, easiest and even the cheapest option), you need your NETFILE access code, which should be sent to you by mail.

NB. VERY IMPORTANT. To use NETFILE CRA must have your current address. If you have a different one than the one they have on file, you must first contact them to update your address. If you are not sure which one they have, call the NETFILE Help Desk: 1-800-714-7257.

Choosing an Accountant

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Whether you do your own bookkeeping, or enlist the help of an administrative assistant or bookkeeper, as your business grows, you may decide to hire an accountant.

Accountants can help with more complex financial issues such as long-term tax planning, business planning or deciding whether or not to incorporate. Many business owners prefer the security of having a designated accountant file their year-end tax returns.

Choosing an accountant is an important decision. Here are some pointers to help you choose who to work with.

The big picture

First off, decide what you need. Do you want to go with a big firm, or do you prefer the feel of a small one? Do you need monthly or quarterly bookkeeping, or just year-end services? Do you need financial planning support?

Ask around

Ask other business owners who they recommend. Bookkeepers often can make solid recommendations as we tend to work with various accountants.

Interview prospects

Don’t just take other people’s word for it. Meet potential accountants in person to discuss what they offer and what you need. Don’t be shy to interview a few different candidates. It is a personal relationship and you need to be sure you can communicate clearly with your accountant.

Be prepared

When you meet an accountant, have a list of questions prepared.

Ask about his/her education.

How much do they charge?

What is his/her experience with your type of business?

What type of software are they using?

How often do they usually meet with their clients?

Being clear about your expectations will help you both decide if you will work well together.

Best of luck!

Employment insurance for the self-employed

I was asked recently about claiming Employment Insurance (EI)benefits as a self-employed person. Here are the basics of what I understand about how to apply, how much you will have to pay and under what conditions you can claim benefits.

Since January 2011 in BC, self-employed people can access EI special benefits. These special benefits are described as maternity benefits, parental benefits, sickness benefits and compassionate care benefits.

How to apply?

In order to be eligible for EI benefits as a self-employed person, you first have to register with the Canada Employment Insurance Commission, applying online with a My Service Canada Account. Then you must wait 12 months.

NB. There are some people who are not eligible to apply for these benefits, so contact Service Canada to confirm eligibility.

 How much will you pay?

Your EI premiums will be calculated based on your income tax and benefit return for the year in which you apply. For example, if you register in 2012 , your EI premiums will be calculated based on your 2012 income tax and benefit return and will be payable by April 30, 2013.

Regardless of when you register during a given year, EI premiums are payable based on your self-employed income for the entire year. See calculation of premiums page for more information.

How can you claim?

(From the Service Canada website ) After 12 months a self-employed person can claim these special benefits if:

You have reduced the amount of time devoted to your business by more than 40% because:

• your child was born,
• you are caring for your newborn or adopted child or children,
• you are ill, injured, or in quarantine, or
• you need to provide care or support to a gravely ill family member.

AND you have earned a minimum amount of self-employed earnings during the calendar year preceding the year you submit a claim. This amount may change from year to year. If you want to apply for benefits in 2012, for example, you would need to earn at least $6,222 in 2011.

AND

• for compassionate care benefit claims – you have provided medical proof showing that a gravely ill family member who is at risk of dying within 26 weeks needs your care or support,
• for EI sickness claims – you have provided a medical certificate as proof that you are unable to work because of illness, injury, or quarantine,
• for EI maternity or parental benefit claims – you have provided the expected date of birth of the child and the actual birth date once it has occurred, or the official placement date in the case of adoption.

If you are self-employed and an insured employee, you can choose whether to apply for EI special benefits either as a self-employed person or as an employee. See amount of weekly benefits page for more information.